The Language of Composition: Reading, Writing, Rhetoric
2nd EditionLawrence Scanlon, Renee H. Shea, Robin Dissin Aufses
661 solutions
Technical Writing for Success
3rd EditionDarlene Smith-Worthington, Sue Jefferson
468 solutions
Edge Reading, Writing and Language: Level C
David W. Moore, Deborah Short, Michael W. Smith
304 solutions
Technical Writing for Success
3rd EditionDarlene Smith-Worthington, Sue Jefferson
468 solutions
Recommended textbook solutions
Fundamentals of Financial Management, Concise Edition
10th EditionEugene F. Brigham, Joel Houston
777 solutions
Essentials of Investments
9th EditionAlan J. Marcus, Alex Kane, Zvi Bodie
689 solutions
Intermediate Accounting
14th EditionDonald E. Kieso, Jerry J. Weygandt, Terry D. Warfield
1,471 solutions
Financial Accounting
4th EditionDon Herrmann, J. David Spiceland, Wayne Thomas
1,097 solutions
Definitions
Value of initial investment
Enter the amount of money you are investing.
Start Year
Enter the year in which the money was first invested.
End Year
Enter the future year on which you want to base your calculation.
Annual interest rate
Annual rate of inflation
Enter a projected annual rate of inflation. The default value (2.0%) equals the mid-point of the Bank's inflation-control target range. You may change this to any rate you wish.
Effect of inflation on value of initial investment
The value of the initial investment after the effects of inflation have been calculated, but excluding interest.
Total interest earned
The total amount of interest earned, before inflation.
Interest earned, after inflation
The total amount of interest earned, after the effects of inflation have been calculated.
Total future value
The total value of the investment after the effects of inflation on the principal and interest have been calculated.
Target future value of investment
Enter the future amount of money you want to have.
Current investment needed for future value
This displays the amount you would have to invest to achieve your future target, taking into account the effects of inflation.
Compound Interest: The future value (FV) of an investment of present value (PV) dollars earning interest at an annual rate of r compounded m times per year for a period of t years is:
FV = PV(1 + r/m)mtor
FV = PV(1 + i)n
where i = r/m is the interest per compounding period and n = mt is the number of compounding periods.
One may solve for the present value PV to obtain:
PV = FV/(1 + r/m)mt
Numerical Example: For 4-year investment of $20,000 earning 8.5% per year, with interest re-invested each month, the future value is
FV = PV(1 + r/m)mt = 20,000(1 + 0.085/12)(12)(4) = $28,065.30
Notice that the interest earned is $28,065.30 - $20,000 = $8,065.30 -- considerably more than the corresponding simple interest.
Effective Interest Rate: If money is invested at an annual rate r, compounded m times per year, the effective interest rate is:
reff = (1 + r/m)m - 1.
This is the interest rate that would give the same yield if compounded only once per year. In this context r is also called the nominal rate, and is often denoted as rnom.
Numerical Example: A CD paying 9.8% compounded monthly has a nominal rate of rnom = 0.098, and an effective rate of:
r eff =(1 + rnom /m)m = (1 + 0.098/12)12 - 1 = 0.1025.
Thus, we get an effective interest rate of 10.25%, since the compounding makes the CD paying 9.8% compounded monthly really pay 10.25% interest over the course of the year.
Mortgage Payments Components: Let where P = principal, r = interest rate per period, n = number of periods, k = number of payments, R = monthly payment, and D = debt balance after K payments, then
R = P � r / [1 - (1 + r)-n]
andD = P � (1 + r)k - R � [(1 + r)k - 1)/r]
Accelerating Mortgage Payments Components: Suppose one decides to pay more than the monthly payment, the question is how many months will it take until the mortgage is paid off? The answer is, the rounded-up, where:
n = log[x / (x � P � r)] / log (1 + r)
where Log is the logarithm in any base, say 10, or e.Future Value (FV) of an Annuity Components: Ler where R = payment, r = rate of interest, and n = number of payments, then
FV = [ R(1 + r)n - 1 ] / r
Future Value for an Increasing Annuity: It is an increasing annuity is an investment that is earning interest, and into which regular payments of a fixed amount are made. Suppose one makes a payment of R at the end of each compounding period into an investment with a present value of PV, paying interest at an annual rate of r compounded m times per year, then the future value after t years will be
FV = PV(1 + i)n + [ R ( (1 + i)n - 1 ) ] / i where i = r/m is the interest paid each period and n = m � t is the total number of periods.
Numerical Example: You deposit $100 per month into an account that now contains $5,000 and earns 5% interest per year compounded monthly. After 10 years, the amount of money in the account is:
FV = PV(1 + i)n + [ R(1 + i)n - 1 ] / i =
5,000(1+0.05/12)120 + [100(1+0.05/12)120 - 1 ] / (0.05/12) = $23,763.28
Value of a Bond:
V is the sum of the value of the dividends and the final payment.
You may like to perform some sensitivity analysis for the "what-if" scenarios by entering different numerical value(s), to make your "good" strategic decision.
Replace the existing numerical example, with your own case-information, and then click one the Calculate.